I have been researching this question on the net and on the IRS website but still am answer-less:

- I am a US citizen residing all year in Switzerland
- My wife is a non-US citizen and non-US-resident

- Do I need to include her foreign earned income in our Married Jointly Federal tax filing?
- Also, if we have rental income, and the answer to the above is NO, do I need to report the rental income if if the income is hers?

If you file jointly, then yes, you need to include your wife's income on your tax return. If you file as married filing separately, then you do not need to include her income on your tax return and she should would not need to file a U.S. tax return if she has no U.S. source income.

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Originally Posted by IntlTax

If you file jointly, then yes, you need to include your wife's income on your tax return. If you file as married filing separately, then you do not need to include her income on your tax return and she should would not need to file a U.S. tax return if she has no U.S. source income.

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Thank you for the prompt answer.
For tax optimization, would it be possible then to do this:

- We file Married Jointly
- We put the rental income under her exclusively
- She does not work and therefore no wages/salaries
- Then can we claim the foreign income exclusion of $85k times 2 or would the fact that her income is passive income not allow us to take the foreign income exclusion?

Your thoughts are appreciated.

swisslonghorn:
Since you are U.S. citizen, you can file only resident tax return as Married Filing Jointly (MFJ) or Married Filing Separately (MFS).

On MFS, you must report your own worldwide income for the year. If you have foreign wages, then you can exclude earned income up to $87,500 by filing Form 2555. If you paid taxes in foreign county you can claim credit by filing Form 1116.
Read: Read: Your U.S. Tax Return: U.S. Citizen or Resident with Foreign Income

On MFJ, both of you must report your worldwide income including rent income.

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Originally Posted by MukatA

swisslonghorn:

On MFJ, both of you must report your worldwide income including rent income.

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My question then is: can we claim $87.5 times 2 persons, if she claims rental income as her own exclusive income but n o other source of income?

Our current situation is: I have income, she has none. So when we file, I can only claim 1 foreign income deduction whereas if she had income, we could claim 2 deductions [ $85 or $87k x two, at least up to the rental income she'd have as it will definitely not be $85k ].

Rental income does not qualify for the foreign earned income exclusion.